I don't understand this obsession with "artificial" stimulus. If the economy naturally grows at 2% a year, but "artificial" stimulus causes it to grow at 3% a year, why wouldn't you do it? It's like refusing to get vaccines because they are unnatural.
Because ultimately it's likely we build unneeded infrastructure that is wasted, including useless companies. Then you still have to pay off those loans slowing growth afterwards. That might be companies that fail or banks with almost failing loans, retarding growth like in Japan for now decades, as well as governments having to reduce spending (or not stimulate) in the recession period because they had so much stimulous during "good times".
In the us it's extremely likely when the next recession comes, Republicans will rediscover their belief in avoiding deficit spending when they are no longer in power. We also will have less things to do to stimulate then in new ways because we already had been doing them. So many political groups want austerity when the economy is hurting instead of stimulous in recession.
This explanation doesn't really fit the evidence. China engaged in a giant stimulus in 2008-2009, and was rewarded with avoiding most of the impact of the financial crisis.
I'm sure China builds some unneeded infrastructure, but they build needed infrastructure that's now beyond the ability of Western governments. New York can't even finish the Second Avenue Subway after 50 years.
You're arguing with an incomplete explanation of how many economists believe stimulus spending works. I'm no economist, but a Keynesian would, I think, say that government stimulus is fine when the economy and demand are lagging. Doing it when the economy is strong encourages capital misallocation and the problems OP mentioned.
The Uber vs Lyft market share wars are a great example of this misallocation. Due to all of the VC money sloshing around both companies are forced to raise and spend ungodly amounts of money in order to fight for market share. In a more rational monetary environment raising money would be more difficult and both companies would be more focused on profitability instead of market share.
The primary risk of this misallocation is that if/when a recession hits, revenues are likely to drop (or grow more slowly), VC money will probably dry up, and raising prices will become more difficult. So the only way to survive will probably be to cut back on expenses (basically fire a ton of employees). And this of course would just compound the recession.
So your solution to the Uber versus Lyft market share wars is unemployment? People in unrelated industries should be unemployed because you find cutthroat competition backed by VCs to be unseemly?
In a way you’re assuming no inflation which has been the case for the past decade. BUT. What happens when China goes offline and takes low cost labor with it? For the record, I believe this situation will resolve within the month but it will certainly reveal global over-reliance on China (this is meant as a positive comment that China has been the single driving force behind economic recovery which they don’t get enough credit for).
Globalization kept inflation at bay. Instead of upping prices due to increased production costs, enterprises in advanced economies moved production to China & co.
This is not necessarily a bad thing of course, as China catches up and the ‘free’ markets work efficiently. Meanwhile the middle-class in the developped countries gets hurt, thus their economies see little inflation.
Another argument for this would be that everything not outsource-able saw rather higher inflation than the CPI numbers. (Housing, education etc.)
Inflation was low because of China. Production cost could easily triple in other parts of the world at the same quality and quantity even if we can move them instantaneously.
